Three vital questions every retailer must ask when setting prices

  • Opinion
  • March 16, 2016
  • Francesca Nicasio
Three vital questions every retailer must ask when setting prices

Should you use the magic number nine or stick to whole numbers?

Ending prices in “.99” is one of the oldest tricks in the pricing playbook. Numerous studies have shown that prices ending in .99 outperform those that end in .00. Why? Because consumers have been conditioned to associate 9-ending prices with bargains or deals.

Indeed, check out this neat chart by Gumroad, a platform that enables creatives to sell directly to their audience. Gumroad analyzed the purchases made on its site and compared the conversion rates of items in whole dollar prices with those that ended in .99


As you can see, products with prices that ended in .99 outperformed the ones with whole numbers across the board. And in one case, the conversion rate was even twice as high.

The reason for this is that consumers experience the “left-digit effect” which is the brain’s tendency to pay more attention to digits that are on the left side of the decimal point. What happens is people base their purchase decision on the first digits they see, rather than the price as a whole.

The same thing can be said about prices ending in .97. Most retailers running deals end their sale prices in .99 or .97 to make them more enticing.

So should you start eliminating whole numbers from your price list? Not quite. The left digit effect may work well when you’re selling to bargain-hunters, but if you’re catering to a high-end or exclusive market, you’re better off using whole numbers.

Research has shown that “there is a perceived relationship between prices ending in 0 and overall quality, and prices ending in 9 and overall value.” In other words, it appears that people associate whole number prices with higher quality.

Take a look at the examples below. The top one is a screenshot from upscale department store Notice something about the prices on the page? Yup, they’re all whole numbers, indicating that the products are for customers willing to spend more.

However, if you head to Nordstrom Rack, the company’s outlet store that’s known for price cuts and sales, you’ll find that almost all the items are priced at xx.97.



Nordstrom Rack


The takeaway here is that ending your prices in .99 or .97 wouldn’t automatically attract more customers. You have to consider what it is your selling, who you’re selling it to, and the perception you wish to convey.

Should you ditch the dollar sign?

Here’s another pricing test you may want to try. Consider removing currency symbols when displaying your prices. Research indicates that doing so may increase consumer spending.

Consider this: When researchers from Cornell University ran a test on menu pricing format and typography, they found that “the largest total checks came from menus that used numerals only and did not mention dollars, either with a word or symbol.” In other words, it appeared that diners spent more when they had menus that only listed the number (i.e. 10) versus when they had menus that listed the currency ($10.00 or ten dollars).

It’s important to note however, that the results from the experiment were not statistically significant enough to form a solid conclusion. As the researchers mentioned, “As much as we might like to believe that we can earn a quick buck by changing the type and presentation of our menus, it is clear that larger operational factors have a much larger impact on purchase behavior than price typography does.”

What does this mean for you? The rules on pricing format and typography aren’t set in stone. Dropping the dollar sign may work for upscale restaurants that want you to focus on the food rather than the price, but the same thing can’t be said for say, outlet malls or bargain retailers.

Take this pricing insight into consideration, but don’t blindly implement it. The best way to know for sure which pricing format works for your store is to run tests of your own. Implement a different typography in a particular branch or store section first, and see if it has any impact on sales before rolling out the changes in your entire business.

Are you giving your customers enough options?

tiered pricing

Companies that implement a tiered pricing strategy aren’t just doing it for the heck of it, Jedi mind tricks psychology also plays a role. When you give customers two or even three price options (ex: basic, plus, premium), the most and least expensive price points act as anchors and create the perception that they’ll get a better deal if they go for the middle option.

Case in point: In the 1990s, retailer Williams-Sonoma unveiled the bread maker and priced it at $275. Sales were slow following its release, and to address this, the company decided to introduce a more expensive, better-functioning one at almost double the price. The result? The original bread maker started flying off the shelves.

When Williams-Sonoma released the more expensive bread maker, it gave consumers a point of comparison that made the $275 option look more attractive.

See if you can implement this strategy in your store. Give customers price anchors to create a perception of value around the products you want to sell.

Bottom line: your pricing sweet spot is a moving target

We wish we could tell you that there are some sure-fire pricing strategies that’ll work across all products, industries, and customers, but the fact is, the perfect price is a moving target. And while the above tactics can make your prices more attractive, they will only work when combined with thorough market research and testing.

 Francesca Nicasio is a retail expert and blogger for Vend, an iPad-based point-of-sale software that helps merchants manage and grow their business. This article was republished from Vend's retail blog, where Vend talks about trends, tips, and other cool things that can help stores increase sales and serve customers better.

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